The year of Spitzer. Aon and Marsh were battered by controversy over contingent commission schemes. Hopes for a federal solution to asbestos reached their high water mark when the U.S. Senate failed to approve the FAIR Act by a single vote. Phase I of the Silverstein WTC cases went to trial. Love Canal was declared cleaned up.

In this case, the Wisconsin Supreme Court ruled that the Court of Appeals erred in refusing to find coverage for breach of contract claims arising out of the insured’s faulty construction of the plaintiff’s warehouse. Whereas the Court of Appeals had declared that the insured’s liability was excluded as being based upon “contractual liability,” the Supreme Court held that the underlying claims not only involved “property damage” that was outside the scope of the economic loss doctrine but that the “contractually assumed liability” exclusion is limited to situations in which the insured contractually assumes the liability of others, as through indemnification or hold harmless agreements, and does not automatically preclude coverage for all suits for breach of contract. In a wide-ranging opinion, the court further declared that a “continuous trigger” was appropriate in cases where injury or damage occurs over more than one policy. Finally, the Supreme Court declared that policies in effect after 1997 need not respond since the claims were a “known loss” by then. The majority’s conclusion was disputed by two dissenting justices who variously argued that (1) the economic loss doctrine should preclude any possibility of coverage that there was no “occurrence” since the insured was aware of existing unstable subsoil conditions that would inevitably result in the building sinking if the work went forward as planned.

Comment: This landmark opinion was the first time that the Wisconsin Supreme Court addressed several key issues, including “known loss” and “trigger of coverage.” More importantly, American Girl gave significant momentum to policyholder arguments that the absence of coverage for contractual claims is not an inherent aspect of CGL policies and is specific to certain “business risk” exclusions rather than the definition of “occurrence.” American Girl pioneered the path to coverage that would be followed by the Texas Supreme Court and others.

The Florida Supreme Court ruled that an auto insurer with limits of $10,000 per person/$20,000 per accident acted in bad faith when it failed to accept the plaintiff’s offer of settlement within the short time permitted. The court refused to find that the insurer’s insistence on having the settlement, which involved a claim by a minor, first be approved by the court in condition for payment of its policy limits was reasonable or justified. Although the District Court of Appeals found that Infinity could not have acted in bad faith, since the offer that was presented was not one that could have been accepted absent court approval, the Florida Supreme Court adopted the view of Florida appellate districts that court approval was not necessary to create bad faith in claims involving minor claims.

Comment: During the past decade, Florida has become an increasingly troublesome source of bad faith claims. With this opinion, the state Supreme Court gave its stamp of approval to a tactic pioneered by plaintiff’s lawyers who set up insurers by demanding the limits of coverage within a short period of time, with little interest or expectation that the demand will be accepted, thus creating an unlimited pool of funds for their clients. Efforts to impose reasonable limits on this tactic through the Florida legislature have met with little success since then.

The Illinois Supreme Court concluded that a gas utility was entitled to coverage under various London Market umbrella policies for costs that the insured had voluntarily incurred to clean up former MGP sites to avoid being sued by the Illinois EPA. The court distinguished the California Supreme Court’s contrary holding in Powerine on the grounds that it involved CGL policies that included a duty to defend, whereas these London excess policies merely required that the insured be “liable” to pay these sums. In this instance, the court found that the requirement of liability was satisfied by the fact that the Illinois environmental statutes imposed strict liability. While concurring that insureds should not be entitled to voluntarily undertake liabilities to trigger coverage, the court declared that the “liability” aspect of the insuring agreement would be satisfied so long as the insured was acting in response to a claim (which need not even be a formal demand letter) and which was satisfied here by evidence that the insured agreed to do the clean up after receiving an oral threat from the IEPA that they could deal with this liability “the easy way or the hard way.”

Comment: Much of the hope engendered by Powerine, evaporated with this opinion.

Where two insurers issued both CGL and professional liability policies to a nursing home, the Fifth Circuit has ruled that allegations that a nursing home failed to provide proper and timely medical and nursing care, causing skin infections and ulcers to develop, triggered the E&O coverage. The court opined that a CGL policy would cover a slip and fall in a waiting room whereas an E&O policy would protect the nursing home against lawsuits by residents who claimed to have been harmed as a result of the medical treatment they received at the facility. On the other hand, while agreeing that the allegations of on-going mistreatment potentially triggered successive professional liability policies, the Fifth Circuit ruled that the District Court had erred in trying to the Hartford “escape” other insurance clause with Royal’s “pro rata” clause, holding instead that both carriers owed coverage since the clauses were in conflict. The court ruled, however, that Hartford was only obligated to pay that share of defense costs that were incurred after the date that the claim was tendered to it.

Comment: This case illustrated a particular aspect of the rising tide of nursing home claims, in which insurers faced not only the difficulty of class actions claims and coverage issues but the pressing question of how “other insurance” disputes could be reconciled as between general liability and professional liability policies.

In this opinion, the Nevada Supreme Court declared that allegations of negligent construction activity are insufficient to trigger coverage under a CGL policy. Concluding that the CGL policy unambiguously restricts coverage to physical injury to tangible property that occurs during the policy period, the Nevada Supreme Court has declared that the insurers of a metal framing subcontractor whose policies were in effect when the Las Vegas Hilton marquee sign collapsed on July 18, 1994 have no right of recovery against earlier insurers whose policies were in effect during the period of time that the sign was being constructed as there was no evidence that the sign suffered property damage prior to its collapse. Furthermore, despite allegations in the underlying complaint that the insured’s subcontractor had been negligent in the erection of the sign, including improper welding and modifications of the bolts connecting the various steel components of the sign, the Supreme Court refused to find that the earlier insurers had a duty to participate in the defense of the case as these allegations of negligent acts only constituted “intangible, economic injuries and not the type of physical, tangible injury or destruction of property that a reasonable person would contemplate as covered under the policy.”

Comment: By 2004, the wave of construction defect litigation that had swamped California had spread far into Nevada. With this decision, the Nevada Supreme Court showed that it would be less liberal than its California counterpart in applying liability insurance to such disputes.